Rehabilitation

Through more than a decade of Homes planning, the team has found that in every submarket residents request rehabilitation. Yet, the ideal structure for a rehabilitation program varies greatly. For a program to be effective and successful, it must be both well-funded and properly designed, matching market conditions and community need. Below are key considerations for housing rehabilitation programs.

How, and how much, to fund

While these questions may seem separate, how a program is funded often drives how much it may provide to a given rehab. Many rehabilitation programs are funded through U.S. Department of Housing and Urban Development (HUD) programs like the Home Investment Partnership Program (HOME) or Community Development Block Grants (CBDG). With CDBG, communities can address “spot rehabilitation,” fixing just a roof or a boiler without addressing other issues. With HOME, rehabilitation must address all of the known issues, making it harder to rehabilitate many homes because any individual rehab may consume significant resources. Whether to set a cap on how much can be spent on any one rehab must be carefully considered in light of the costs likely to be found. Both federal sources come with many regulatory requirements. The Illinois Housing Development Authority (IHDA) has funded housing rehabilitation in the past, but use of those funds also comes with regulatory requirements that can make use challenging. Local funding allows for far greater flexibility in designing a program tailored to local needs, but requires raising local revenue.

Who to give the funds

Program operators and funders must consider what entities to fund with the money. Providing assistance to individual homeowners is the best approach in some places, such as those with high rates of homeownership or a number of homeowners in units needing repair. In others, such as markets with vacancy and high rates of foreclosure, it might be better to fund an active local non-profit to buy, rehabilitate, and then resell or rent units.

How to give the funds

The structure of a rehabilitation program depends on many factors, including the housing and households targeted, the housing market of the area, and the funding source. As a rule of thumb, however, there are three main methods.

Grant—Assistance to the homeowner can be provided as a straight grant, with no recollection of the funds. This format is the most administratively simple, as it may not require monitoring of the property into the future.

Loan—Rehabilitation funds can be provided to the property owner as a traditional loan, where the program operator charges an interest rate (typically below market rate) and requires periodic payments (monthly, quarterly, annually, etc.) over a number of years. This design is the most administratively intense, requiring personnel to manage the portfolio of loans and track repayment.

Deferred Loan—In this type of program, the operator provides a loan for rehabilitation, with repayment deferred until the property is sold. Interest is not typically charged on such loans. Some programs will forgive the loan if an owner-occupant lives in the home for a set time period. The administrative burden of this format falls somewhere in the middle. The program must monitor homes to ensure money is collected upon resale or that the loan is released after the agreed upon period.

In markets with very low values or recently declining values, homeowners may not have equity or income to support any type of loan.

More resources

Home Grown includes links to a number of different rehabilitation programs in the region that use different combinations of the above considerations.

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